However, Would I confuse the computer if I ran the "inactive" sensor that's pre-cat on the 305 to post cat on the 350? I guess I am confused on that portion of it since It's wired and powered to something...
My guess would be yes, that would probably be bad. Pre-cat O2s are used by the PCM to control fuel trims, I wouldn't be comfortable moving one of them post-cat even if it was marked inactive in the manual. Someone at GM put it there for a reason. I'd have to go check in my suburban but I'm pretty sure they both report readings in Torque and DashCommand.
I'm not sure where you're finding that 5.7L mid pipes are cheaper than the 4.3/5.0L ones... The cheapest 4.3/5.0 mid pipe with cats I can find on Summit is a Flowmaster 2010022, it's $292. The cheapest 5.7L one for comparison is a Flowmaster 2010023, it's $337. The 4.3/5.0 cat back systems are a little more expensive than the 5.7L ones for some reason though. Probably because the 5.7L setups are more common and therefore more people sell cheaper versions of them.
Either way Summit has Gibson cat back systems on sale right now. That Flowmaster 2010022 for 4.3/5.0s and a Gibson Supertruck 65514 4.3/5.0 cat back come out to $669. That's a tiny bit over your projected budget but it's all nice stainless steel parts that are correct for your truck and you don't have to worry about O2 sensor placement or anything else weird.
EDIT - That Gibson system is for a short bed though, you never mentioned exactly what truck this is for. They have a long bed system but it's about $80 more.
DOUBLE EDIT - Also realized the Supertruck system is side exit in front of the rear wheel. Probably not what you're looking for. They have different full length systems for a little more $ though.